What is a vertical market? Online selling and business niches

Definition: Vertical markets, or "verticals," are business niches where vendors serve a specific audience and their set of needs. Vertical markets are increasingly being served via ecommerce businesses because of the minimal overhead and ability to reach a worldwide audience.

By contrast, a horizontal market has a focus that reaches a wide array of individuals, regardless of their industry or particular niche. Online businesses commonly engage verticals in targeted marketing or outreach campaigns.

For example: an online store that sells specialized football cleats — targeted at football players — constitutes a business aimed at a vertical market. Each department within such a company, such as Youth and Adult, can also be considered narrower vertical market.

Why defining vertical markets is beneficial for both consumers and merchants

From a customer's perspective, identifying vertical markets simplifies their shopping process and offers them a business that specializes on serving their specific need.

Other advantages of verticals include:

From an advertising perspective, vertical markets are preferred because they allow for the creation of a single unified advertising effort that can be instituted across the board.

Even businesses prefer verticals, as their existence permits companies to specialize on niche products where they thrive. When a company is allowed to specialize, it can perfect its product or service more easily and dominate the market.

Specialization often means reduced competition, resulting in the market being able to support a higher price for the particular product or service. While some specialized markets are crowded, businesses usually target verticals where there is an opportunity to innovate and offer something different.

Factors to consider before entering a vertical market

The primary advantage to verticals can also be the disadvantage: a smaller customer base that may limit the revenue potential. As a business specializes, it can reduce the number of potential customers interested in their products or services. While broader markets can target a large portion of the population, a focused vertical has fewer interested consumers. The key is to find a profitable vertical with growth potential.

Another potential downside of verticals is the risk factor: if the specialized market decreases in size, the business will suffer. Some specialized verticals go out of fashion or get replaced by products from another vertical. Therefore, the intricacies of the vertical should be studied before the business specializes. An accurate assessment of the space is necessary to determine if the business should operate in such a specialized niche.

With a thorough business plan and comprehensive understanding of the market, an online business can enter — or expand to — a vertical market and enjoy near-term success.